INVESTMENT ADVISOR: People Are Investing Without Really Knowing How To Do It

Ask the average American worker what's going on with his 401(K)
this quarter, and chances are he won't know where to begin.

That's a big problem, according to Amir Avitzur, author of
Why Do We Sell Low and Buy High?, because it
shows how distanced we've become from our safety nets at a time
when we truly need them.

The issue is rooted in the way we learn about investing,
something that should begin when we're young, but typically
doesn't.

"As young people we learn about the importance of money and
savings. However, we receive very few lessons about the basics of
investments," Avitzur told Business Insider. "Most people will
know about mortgages and credit cards and how to use coupons to
save money, but will have a more difficult time in reading annual
reports or financial statements of companies that they directly
or indirectly invest in. These investment decisions might
significantly influence their long term financial future."

Even worse, we're being handed mutual funds and ETFs through
employer-provided retirement plans without learning the basics.

"People don't even consider the mutual fund philosophies, and
what stocks they hold," Avitzur said. "People that
start a job are being automatically allocated to a 401(K) and
similar plans. There are very few places that provide a
constructed training and teaching to explain the fundamental of
these decade long decisions. I would like to see the providers of
these plans not only allocate the employee money automatically,
but also provide the employee knowledge about the fundamentals of
investing in mutual funds and even basic accounting
training."

Beyond sheer ignorance, there's the issue of following the wrong
advice when we do pay attention.

"A lot of people that I have interviewed admitted that some of
their investment decisions were purely made based on a 5 minute
conversation with a friend, or a two minute mention of a stock on
a TV show," said Avitzur, a troubling thought
given how little Americans have been saving these
days. "TV can be great for entertainment,
but it is not necessarily the best tool to base your long-term
investment decisions on."

So where is the best place to start if you're clueless?
"The people who have the same mindset as you. Read their
writing. If you're interested in business, learn about business.
If you're interested in real estate, learn about that."

And don't be afraid to read business annual reports and other
timely filings to "get the real fundamentals," Avitzur added. You
can also read about competitors, and speak to people from the
industry.